AICPA ETHICS CODE EXAM–COMPLETE STUDY GUIDE |
PRACTICE QUESTIONS AND ANSWERS-RATIONALES | EXAM
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LATEST EXAM 2026-2027
1. Which of the following fundamental principles of the AICPA Code of Professional
Conduct imposes an obligation on members to maintain professional knowledge and skill
at the level required to ensure that clients receive competent professional service?
A. Integrity and Objectivity
B. Professional Competence and Due Care
C. Confidentiality
D. Professional Behavior
Answer: B
The principle of Professional Competence and Due Care requires CPAs to maintain
professional knowledge and skill continually and act carefully in accordance with technical
and professional standards.
2. A CPA firm has been asked to audit a private manufacturing company where the
engagement partner's sister serves as the corporate controller. Which ethical threat does
this relationship primarily create?
A. Adverse interest threat
B. Advocacy threat
C. Familiarity threat
D. Undue influence threat
Answer: C
A close family relationship with someone in a financial reporting oversight role creates a
familiarity threat because the long-standing personal tie could compromise objective
professional judgment.
3. In the context of the AICPA Conceptual Framework, safeguards to independence are
actions or other measures that may eliminate a threat or reduce it to an acceptable level.
Which of the following is considered an effective safeguard implemented by the attest
client?
A. The client has internal management that makes all significant management decisions
independently.
B. The client fires its internal legal counsel to hire the CPA firm's preferred attorneys.
, C. The client allows the audit firm to draft its annual financial statement disclosures without
review.
D. The client prohibits its board of directors from meeting with the audit engagement team.
Answer: A
An attest client having competent personnel who make all management decisions
independently helps mitigate self-review and management participation threats by ensuring
the client retains proper oversight.
4. A CPA discovers that a client has materially misstated its inventory valuation in prior-
year financial statements used for bank financing. Current management refuses to correct
the error. What is the primary ethical duty of the CPA under the AICPA Code?
A. Immediately notify the local law enforcement authorities without client consent.
B. Resign from the engagement and assess obligations to notify third parties who are relying on
the statements.
C. Alter the working papers to reflect management's estimated valuation figures.
D. Absorb the liability by signing an unverified audit report.
Answer: B
When management refuses to correct a material misstatement, the CPA must evaluate the
continuation of the client relationship, withdraw if appropriate, and determine any legal or
professional reporting duties to third parties.
5. Under the AICPA Code, when is a CPA permitted to disclose confidential client
information without the client's explicit consent?
A. To market unrelated tax planning services to prospective business partners of the client.
B. To comply with a valid subpoena or summons enforceable by law.
C. To share interesting operational insights with competing firms at a professional networking
event.
D. To protect the CPA's personal reputation in a public social media debate.
Answer: B
CPAs are bound by confidentiality rules but must comply with lawful subpoenas, court orders,
or authorized peer review and regulatory compliance investigations.
6. A tax practitioner enters into a contingent fee arrangement with a client to prepare an
original corporate income tax return. According to AICPA independence and ethics rules,
is this arrangement permissible?
A. Yes, provided both parties sign a written contract before the tax return filing deadline.
, B. Yes, if the contingent fee is based solely on the ultimate refund percentage awarded by the
IRS.
C. No, contingent fees for preparing original tax returns are prohibited because they impair
objectivity.
D. No, unless the client is a non-profit organization exempt from federal corporate taxes.
Answer: C
The AICPA Code prohibits CPAs from performing professional services for a contingent fee
when the CPA also performs attest services for that client, or when preparing original tax
returns where the fee depends on the outcome.
7. An audit senior owns a minor, immaterial number of shares in an audit client through a
diversified mutual fund. Does this financial interest impair the firm's independence?
A. Yes, any direct or indirect ownership of client stock automatically destroys independence.
B. No, indirect financial interests in mutual funds are generally not considered material or
independence-impairing unless the CPA has control over the fund's investments.
C. Yes, because mutual funds are high-risk financial vehicles restricted by the SEC.
D. No, provided the audit senior sells the shares within 48 hours of engagement completion.
Answer: B
Ownership of a mutual fund holding client shares is classified as an indirect financial interest
and generally does not impair independence unless the investment is material to the CPA's net
worth.
8. Which conceptual framework step requires a CPA to evaluate whether identified threats
to independence are at an acceptable level before accepting a new attest engagement?
A. Identifying threats
B. Evaluating threats
C. Applying safeguards
D. Terminating the client contract
Answer: B
Once threats are identified, the CPA must evaluate their significance and determine whether
they are at an acceptable level or if safeguards are required to reduce them.
9. A CPA provides bookkeeping services and then performs the financial statement audit
for the same private company client. Which threat is most directly created by this dual
role?
A. Self-review threat
B. Advocacy threat
, C. Undue influence threat
D. Familiarity threat
Answer: A
Preparing source documents or financial statements and subsequently auditing those same
records creates a self-review threat because the CPA is essentially evaluating their own prior
work.
10. A CPA accepts a commission for recommending a third-party software vendor to an
attest client. What is the ethical status of this transaction under the AICPA Code?
A. Fully permissible if disclosed in a verbal conversation.
B. Prohibited because the recipient is an attest client of the CPA firm.
C. Permissible if the commission is split evenly with the client's internal audit department.
D. Permissible if the software is unrelated to financial reporting systems.
Answer: B
The AICPA Code prohibits CPAs from receiving commissions or referral fees for
recommending products or services to clients for whom the CPA performs attest services.
11. An accountant knowingly signs a tax return containing unsubstantiated travel
deductions provided by a client who insisted on claiming them despite lacking receipts.
Which ethical principle has the accountant violated?
A. Confidentiality
B. Integrity and Objectivity
C. Due Care exclusively
D. Interpersonal communication standards
Answer: B
Knowingly submitting false or unsubstantiated information on a tax return violates the
fundamental principles of integrity and objectivity, as well as standards for tax services.
12. When a CPA is threatened with dismissal from a client engagement unless they agree to
alter an audit opinion, what specific threat does this situation represent?
A. Self-interest threat
B. Undue influence threat
C. Advocacy threat
D. Familiarity threat
Answer: B
PRACTICE QUESTIONS AND ANSWERS-RATIONALES | EXAM
PREP | DOWNLOAD INSTANT PDF | GUARANTEED PASS ||
LATEST EXAM 2026-2027
1. Which of the following fundamental principles of the AICPA Code of Professional
Conduct imposes an obligation on members to maintain professional knowledge and skill
at the level required to ensure that clients receive competent professional service?
A. Integrity and Objectivity
B. Professional Competence and Due Care
C. Confidentiality
D. Professional Behavior
Answer: B
The principle of Professional Competence and Due Care requires CPAs to maintain
professional knowledge and skill continually and act carefully in accordance with technical
and professional standards.
2. A CPA firm has been asked to audit a private manufacturing company where the
engagement partner's sister serves as the corporate controller. Which ethical threat does
this relationship primarily create?
A. Adverse interest threat
B. Advocacy threat
C. Familiarity threat
D. Undue influence threat
Answer: C
A close family relationship with someone in a financial reporting oversight role creates a
familiarity threat because the long-standing personal tie could compromise objective
professional judgment.
3. In the context of the AICPA Conceptual Framework, safeguards to independence are
actions or other measures that may eliminate a threat or reduce it to an acceptable level.
Which of the following is considered an effective safeguard implemented by the attest
client?
A. The client has internal management that makes all significant management decisions
independently.
B. The client fires its internal legal counsel to hire the CPA firm's preferred attorneys.
, C. The client allows the audit firm to draft its annual financial statement disclosures without
review.
D. The client prohibits its board of directors from meeting with the audit engagement team.
Answer: A
An attest client having competent personnel who make all management decisions
independently helps mitigate self-review and management participation threats by ensuring
the client retains proper oversight.
4. A CPA discovers that a client has materially misstated its inventory valuation in prior-
year financial statements used for bank financing. Current management refuses to correct
the error. What is the primary ethical duty of the CPA under the AICPA Code?
A. Immediately notify the local law enforcement authorities without client consent.
B. Resign from the engagement and assess obligations to notify third parties who are relying on
the statements.
C. Alter the working papers to reflect management's estimated valuation figures.
D. Absorb the liability by signing an unverified audit report.
Answer: B
When management refuses to correct a material misstatement, the CPA must evaluate the
continuation of the client relationship, withdraw if appropriate, and determine any legal or
professional reporting duties to third parties.
5. Under the AICPA Code, when is a CPA permitted to disclose confidential client
information without the client's explicit consent?
A. To market unrelated tax planning services to prospective business partners of the client.
B. To comply with a valid subpoena or summons enforceable by law.
C. To share interesting operational insights with competing firms at a professional networking
event.
D. To protect the CPA's personal reputation in a public social media debate.
Answer: B
CPAs are bound by confidentiality rules but must comply with lawful subpoenas, court orders,
or authorized peer review and regulatory compliance investigations.
6. A tax practitioner enters into a contingent fee arrangement with a client to prepare an
original corporate income tax return. According to AICPA independence and ethics rules,
is this arrangement permissible?
A. Yes, provided both parties sign a written contract before the tax return filing deadline.
, B. Yes, if the contingent fee is based solely on the ultimate refund percentage awarded by the
IRS.
C. No, contingent fees for preparing original tax returns are prohibited because they impair
objectivity.
D. No, unless the client is a non-profit organization exempt from federal corporate taxes.
Answer: C
The AICPA Code prohibits CPAs from performing professional services for a contingent fee
when the CPA also performs attest services for that client, or when preparing original tax
returns where the fee depends on the outcome.
7. An audit senior owns a minor, immaterial number of shares in an audit client through a
diversified mutual fund. Does this financial interest impair the firm's independence?
A. Yes, any direct or indirect ownership of client stock automatically destroys independence.
B. No, indirect financial interests in mutual funds are generally not considered material or
independence-impairing unless the CPA has control over the fund's investments.
C. Yes, because mutual funds are high-risk financial vehicles restricted by the SEC.
D. No, provided the audit senior sells the shares within 48 hours of engagement completion.
Answer: B
Ownership of a mutual fund holding client shares is classified as an indirect financial interest
and generally does not impair independence unless the investment is material to the CPA's net
worth.
8. Which conceptual framework step requires a CPA to evaluate whether identified threats
to independence are at an acceptable level before accepting a new attest engagement?
A. Identifying threats
B. Evaluating threats
C. Applying safeguards
D. Terminating the client contract
Answer: B
Once threats are identified, the CPA must evaluate their significance and determine whether
they are at an acceptable level or if safeguards are required to reduce them.
9. A CPA provides bookkeeping services and then performs the financial statement audit
for the same private company client. Which threat is most directly created by this dual
role?
A. Self-review threat
B. Advocacy threat
, C. Undue influence threat
D. Familiarity threat
Answer: A
Preparing source documents or financial statements and subsequently auditing those same
records creates a self-review threat because the CPA is essentially evaluating their own prior
work.
10. A CPA accepts a commission for recommending a third-party software vendor to an
attest client. What is the ethical status of this transaction under the AICPA Code?
A. Fully permissible if disclosed in a verbal conversation.
B. Prohibited because the recipient is an attest client of the CPA firm.
C. Permissible if the commission is split evenly with the client's internal audit department.
D. Permissible if the software is unrelated to financial reporting systems.
Answer: B
The AICPA Code prohibits CPAs from receiving commissions or referral fees for
recommending products or services to clients for whom the CPA performs attest services.
11. An accountant knowingly signs a tax return containing unsubstantiated travel
deductions provided by a client who insisted on claiming them despite lacking receipts.
Which ethical principle has the accountant violated?
A. Confidentiality
B. Integrity and Objectivity
C. Due Care exclusively
D. Interpersonal communication standards
Answer: B
Knowingly submitting false or unsubstantiated information on a tax return violates the
fundamental principles of integrity and objectivity, as well as standards for tax services.
12. When a CPA is threatened with dismissal from a client engagement unless they agree to
alter an audit opinion, what specific threat does this situation represent?
A. Self-interest threat
B. Undue influence threat
C. Advocacy threat
D. Familiarity threat
Answer: B
